IRS Requires Firms to Report Iffy Tax Breaks

The Internal Revenue Service plans to start requiring large corporations to disclose on their tax returns whether they are taking tax breaks that might be unacceptable to the IRS.

Large corporate tax filings are often complex, with some firms taking tax breaks that fall into a gray area of tax law. IRS Commissioner Douglas Shulman said that requiring firms to flag those "uncertain tax positions" for IRS examiners would improve enforcement.

Firms must already set aside money to pay additional taxes when they take such positions. The new rule will require them to report the total amount of taxes they would owe if the tax breaks are not allowed, essentially waving a red flag at auditors when taxpayers take big money deductions.

The new requirement would be limited to firms with assets of at least $10 million.

"The goals of our proposal are simple: to cut down the time it takes to find issues and complete an audit," Shulman said in written remarks announcing the changes to the New York State Bar Association. "We could have asked for more — a lot more — but chose not to."

Robert Willens, a corporate tax accountant in New York, said the new rules will "fundamentally change the balance of power" when the IRS examines corporate returns.

"This is going to cause some real consternation out there," Willens said. "I can understand why the commissioner would want to do this but we haven't even begun to hear the last of this."

The Internal Revenue Service plans to start requiring large corporations to disclose on their tax returns whether they are taking tax breaks that might be unacceptable to the IRS.Large corporate tax filings are often complex, with some firms taking tax breaks that fall into...